The complex collection of Laws, Acts and Edicts makes taxation in Hungary a little bit complicated. First we will review them with a general point of view to understand, why this is a cardinal point. After we are going to mark and list the main tax types what will have influence on your business. Finally we will list some possibilities how to decrease the payable taxes.
Taxes in Hungary are levied by the State (and the local Governments) and collected by the Tax Authority -in a direct or an indirect way. There are many different kind of taxes and contributions but also numerous methods to decrease them. There are general taxes and there are industry specific ones. Some tax’s percent value is fix, some of them is changing. When calculating the tax base you can deduct many expenses, but you can not some other. Some expense’s VAT is deductible some is not. And we still didn’t even mention some other modifying factors what may modulate the tax base.
Also, submitting VAT report is possible yearly, quarterly or monthly depending on what rule is or going to be relevant in your company’s case. Business year is from the 1, January till the 31, December –except for branches of foreign-based companies. As for the yearly tax declaration, firms have to pay taxes till the 31, May belonging the previous year. If they already have closed taxation-year: they also have to pay advance tax, based on the previous year’s declaration.
And this is just still the top of the iceberg. As we can see contracting with a great accountant who will guide you in order to make the reports perfect and to understand well the taxation in Hungary is more than necessaire. His job is also updating the companies about the changes in the rules. Naturally this is closely not impossible but you have to be sure to put enough focus on this question. That’s why we are reviewing this topic from a practical point of view.
HINT: you can also hire a financial expert or at least a financial assistant who will take care of your company’s financial state. Even just from ordering the needed documents through checking the accountant till doing the bookkeeping by himself. Many years’ experience: Let the expert work on his field of specialty. You can not expect from your secretary to be able to do the bookkeeping.
Before we get into the numbers and once we mentioned accountants, we have to say a word about auditors. All the companies which submit their reports based on double-entry bookkeeping (by the main rule all of them has to act like this), they have to assign an auditor. By the Law it is not mandatory if the two below conditions meet:
– the annual net sales do not exceed 300 M HUF in average of the last two financial years
– the average number of the employees do not exceed 50 people in average of the last two financial years.
And now let’s talk about numbers. First of all the expectable expenses while starting a company in Hungary is mentioned in our online product. Above this what we have to talk about? The tax percent.
The Profit Tax or as it is called in Hungary the Corporate Tax is 10 % under 500 M HUF tax base and 19 % above this. If the owners wish take out dividend another 15 % of the amount is payable as income tax and 14% is payable also as health contribution (maximized in 450 000 HUF).
Local Business Tax is levied by the local government of your registered seat, might be from 0 % up to 2 %.
The VAT is 27 % though most of the company’s expenses’ VAT content is reclaimable –or deductible if there is enough income. Individual entrepreneurs also can choose to register themselves under the VAT or not, just like companies with specific activities e.g. immovable sellers or lessors. The VAT content is 5% in case of some medical goods, just likes pills, drugs, medical equipments, but also of books, newspapers, some meats. The VAT is 18% for milk and dairy products, products made with cereals, flour, or milk and some services.
The best taxation system for you, and some „changing rules” and special taxes what will be relevant for your company depend on the expected yearly income and on the activity field you are going to work in. And on some other details also, but we can not cover all the details here.
This is also a reason why to consider advance tax planning and tax calculation. What anyway should be part of your business planning. Or at least a business consultation with Business Management Hungary.
Many investors start real estate business. Buying an immovable in Hungary brings a contribution payment duty. Till the buying price of 1 billion HUF the duty is 4 %. If the buying price is higher than 1 billion HUF, the duty is 2 % for the part above, but the amount is maximized: can not be more than 200 MHUF. Paying VAT depends on the decision: what the buyer company wants to do with the immovable in the future. Private persons do not pay VAT in case of used immovable.
When it comes to talk about taxation in Hungary related to employment, the management has to be wise as the wage related taxes and contributions are high. You can avoid a lot of headache if you understand, an employee talks about his salary in net, but you have to mean it in gross, included the taxes. With them there is almost a double multiplier between the numbers. Let us show you an example. When paying a low-average amount of net 200 000 HUF, in gross, included the employer’s taxes and contributions it will cost you 386 464 HUF.
A foreseeing tax optimization might be crucial when you reach a certain amount of income and payable tax amount. You can decrease or the tax base, or the payable amount, or both of them if you match the conditions. A few examples:
– using the loss of the previous year
– making a development provision up as part of a future investment
– giving place for professional schools’ students for obtaining practical experience
– employing novice or unemployed people (there are some more options)
– employing changed working ability person
– supporting a “show” team sport
– renting a car instead of buying one
– paying insurance for the employees: tax free and might be part of the allowance package
At the end it’s very important: these information are correct but not fully comprehensive. When it comes to start your business in Hungary you might need to pay more taxes, consider other modifying factors and must to calculate with expenses, like legal fee, accountant’s cost, etc. In order to get help from Business Management Hungary for tax planning or business planning: contact us!
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